Simpler annual benefit statements to be introduced from October 2022

Regulations for the introduction of simpler annual benefit statements for auto-enrolment defined contribution (DC) pension schemes will come into force in October 2022.

In its consultation response, the Department for Work and Pensions (DWP) said that many respondents expressed concerns regarding schemes’ abilities to make the changes required for the regulations to come into force in April 2022, as was initially proposed.

There was no consensus on what the alternative date should be, according to the government, with several options presented, including October 2022 and April 2023.

“The government is mindful of the concerns expressed about the need to ensure the trustees and managers of all schemes in scope have sufficient time to adopt the requirements of the new regulatory approach in order to ensure the accuracy and quality of statements,” the consultation response stated.

“Therefore, the coming into force date of the regulations has been amended to 1 October 2022, and the transitional provision has been removed.

“This will support our ambition that simpler annual benefit statements land well with savers as a key communication and engagement vehicle.”

The statements will initially focus on DC schemes used for auto-enrolment. However, the DWP noted that “a number of responses” suggested that the regulations should be broadened to include all DC schemes.

The government said it will “consider the lessons learnt” from the first phase of introduction as to how applicable the regulations are to other kinds of scheme.

It will review the initial phase of roll out and publish a report on its findings before 1 October 2027, with further reviews and reports within every five years after that.

The government also confirmed that it would be clarifying the relationship between information that is required by the regulations; the additional information set out in the draft statutory guidance and included on the face of the draft illustrative statement template; the information to which the illustrative template may signpost; and the layering of additional documentation that may be sent to a member with their statement.

It also continued to encourage trustees and managers to provide costs and charges information on the face of their statements, as it believes that “comprehensive, transparent and consistent charging formation will enable member to be more engaged with their pensions and allow them to take decisions on which pension is right for them”.

The DWP acknowledged that there was increasing innovation in pension communications, but stated that paper-based statements will remain a “well-established form of communication for many”.

Commenting within the foreword of the consultation response, Pensions Minister, Guy Opperman, said: “I believe that short, simple, statements will usher in a new standard for how schemes communicate with their members – greatly improving people’s understanding and engagement with their pensions. That is why this government is driving forward consumer focussed simpler annual pension benefit statements.

“I am passionate about enabling people to understand their pension savings more easily. I want to cut through all the jargon and complexity that too often get in the way of such understanding. With more people saving more for their retirement thanks to the tremendous success of automatic enrolment, it’s vital that we ensure that they can understand how their pensions work to help them plan.

“Annual statements are long-established but should not simply provide information which is indigestible to the saver and which results in them being unread, or without the saver being able to understand their content.

“They should guide a saver through a straightforward narrative that enables them to see how much money they have in their pension plan and what they have saved in that year; how much money they could have when they retire; and prompt them to think about what they could do to give themselves more money when they retire.

“They are a tool that can start an engagement journey through the variety of other tools or sources of information that exist, or which can provide simple, straightforward, reassurance that things are on track.

“I see the regulations for automatic enrolment schemes as only a first step, as we continue our mission to make pensions easier to understand.”

Also commenting on the consultation response, Smart Pension director of policy, Darren Philp, said: "We welcome the outcome of this consultation and the introduction of simpler annual benefit statements for auto-enrolment schemes from October 2022.

"For too long the industry, driven in part by regulation, has bamboozled savers with overly complex information that has focused more on simply meeting disclosure requirements.

"Making the statement mandatory is an important step in changing the way members are communicated to and we hope it will be rolled out more widely in due course. It's also a great precursor to pensions dashboards as the pensions industry moves into the digital age."

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